DQ 1 1) Would a traditional income statement differ depending on whether the business is a service organization, merchandiser, or manufacturer?

2) The answer to this question would be yes and no. I choose to answer this way because regardless to what is a service organization, merchandiser, or manufacturer the purpose of the traditional income statement is to determine the net income. The only thing that differs is the way the sections are labeled.

Are raw materials, labor, and overhead direct or indirect costs? How do we determine the behavior of these types of costs?

When determining if a cost is direct or indirect we must determine if the cost is physically connected to a product. Therefore, raw materials, and labor will be considered direct cost, because they are used to make or produce the final product. Overhead will be considered an indirect cost, because it includes expenses needed to produce the product but no physical attachment. This will include: facilities, utilities, administrative, and etc…

DQ 2
Go to page 130, Case 3-30, Ethics and the Manager. Let’s discuss the questions, make value-added comments, points, and share personal experiences of unethical situations.
When we discuss ethics, the conversation leads to the acts of management to make the "best" decision for the organization. Unfortunately, this has not been the case in the past. Therefore, the Sarbanes-Oxley Act (Act) was enacted in 2002. The Sarbanes-Oxley Act requires that a company develop sound principles of internal control over financial reporting and continually verify that these controls are working. The act specifically requires top management to attest that the company’s internal controls are reliable and effective.

Do you feel that the Act truly holds managers accountable for their unethical behavior?

Yes, I feel the Act holds managers accountable for their unethical behavior. The Act states managers are responsible to insure internal control is administered within the company. Therefore, managers will suffer the consequence if any unethical practices occur within the company.
Should Cristin Madsen go along with the general manager's request to reduce the direct labor-hours in the predetermined overhead rate computation to 105,000 direct labor-hours?
If Cristin Madsen goes along with the general manager’s request to reduce the direct labor hours in the predetermined overhead rate to 105,000 that will be unethical. The reduction will increase the cost of goods sold, making it look as if the company’s profit increased and generating a bonus for management. The ethical thing for Cristin to do is report the direct labor hours at 110,000 as determined in her analysis. This will give the company an accurate overhead rate and helps the company determine goals in production.